Analysing The 2016 Asia Pacific Food And Beverage Industry

Friday, September 22nd, 2017

With the new year ahead, which sectors of the food and beverage industry are likely to drive growth? What can manufacturers expect to see in 2016? BY Arunas Umbrasas, Industry analyst at Euromonitor International

The Asia Pacific food and beverage industry is expected to achieve a turnover of US$3.23 trillion in 2016 after growing to almost the same level as the rest of the world combined. With a projected year-on-year growth of 11 percent in 2016, the industry will outpace the second and third largest regions—Western Europe and North America—which will see relatively modest expansion rates of two percent and four percent, respectively.

China, Japan, and Indonesia are set to rank as the leading food and beverage producers in Asia Pacific in 2016, together accounting for just over three quarters of total turnover. Although the countries in Asia Pacific are highly diverse in terms of income levels, demographics, and dietary preferences, the industry is nevertheless shaped by several common trends.

Asia’s Food Drivers: Rice, Oil And Meat

Three key categories will account for almost half of Asia Pacific’s US$2.86 trillion food industry turnover in 2016, namely grain mill products, oils and fats, and meat and meat products. Moreover, these key categories will rank among the fastest growing, as each are expected to register double-digit value expansion in 2016.

Grain mill products will account for nearly one fifth of food industry turnover in 2016 largely, due to rice being the daily staple in most Asian countries and an important export commodity. Moreover, rice will continue to benefit from an established supply chain in Asia Pacific, including both a vast rice growing landscape and an ever-expanding rice processing industry.

Vegetable and animal oils and fats will capture an estimated 14 percent share of industry turnover in 2016. Asia Pacific will continue to be the largest global consumer of oils and fats, as Asian consumers’ taste for fried food and thus demand for cooking oils and fats is showing no signs of stopping. Moreover, Asian countries will rank amidst the leading global suppliers of vegetable oils. Southeast Asian countries, such as Malaysia and Indonesia, will continue to invest in the renewal of palm tree varieties in order to improve yields of the world’s most popular vegetable oil, both for domestic use and for exports.

Meat and meat products will rank as the third largest food category in value terms in 2016. Despite high variance in meat consumption among Asian countries, the region as a whole will post double-digit expansion in turnover and rank as the largest producer in the world. With the exception of India, where nearly half of the population is vegetarian, production of and demand for meat products will be driven by growing disposable income and the popularity of Asian fast food.

Not far behind these three is also the ready meals that includes spices, coffee, and tea, which will account for a 12 percent share of the food industry turnover in 2016. Production of ready meals and soups will enjoy robust growth in line with increasingly busy lifestyles in metropolitan areas. Ready-to-eat and ready-to-cook meals will benefit from particularly robust growth in Asia Pacific’s developed countries, including Singapore and South Korea, where working hours are long, time for cooking is scarce, and eating on-the-go while commuting or at the desk is commonplace.

Healthy Drinks And Booze Govern Beverage Growth

Asia Pacific beverage turnover will account for 11 percent of the joint food and beverage industry in 2016 after reaching US$365 billion. In value terms, alcoholic and non-alcoholic drinks will account for nearly equal shares of the industry.

Soft drinks expansion will be shaped largely by the health and wellness trend, which will see bottled water, juice, and ready-to-drink (RTD) tea combined account for more than three quarters of domestic volume sales. Moreover, the three categories will see year-on-year growth in high single digits in 2016, matched only by growth in sports and energy drinks.

Health awareness will spur development of functional beverages— i.e. drinks containing vitamins, minerals, amino acids, or raw fruit. For Asians, functional beverages are an affordable, convenient, and trendy way to take nutritional supplements. Functional beverages are present in a variety of forms in order to cater to differences in taste between countries, although the most popular forms across Asia Pacific are energy drinks and RTD teas.

Carbonated drinks will remain the largest segment in soft drinks, accounting for more than one fifth of turnover in 2016, but growing slower than the soft drinks industry. Consumption growth will lag due to concerns over sugar content and preference for healthier alternatives, such as bottled water or ready-to-drink tea. Therefore, growth will be driven by the less developed countries in Asia Pacific, such as Philippines and Vietnam, where growing incomes will facilitate consumption of carbonated drinks offered by well-known brands such as Coca-Cola and Pepsi.

Bottled water will capture 22 percent of the total soft drinks turnover value in 2016 and register double digit growth. Key drivers of expansion will be perception of bottled water as a healthy alternative to carbonated soft drinks and a substitute for tap water in heavily polluted metropolitan areas. Moreover, consumers will move up-market and purchase more expensive premium brands of bottled water following scandals of excessive levels of metals, bugs, and even bacteria found in bottom-tier bottled water products. On the supply side, bottled water turnover growth will be fuelled by build-up of production capacity and tapping of new water resources. For instance, the glaciers in the Tibet Autonomous Region became a target for numerous bottled water producers due to abundance of cheap, clean, and therefore premium-priced water.

RTD tea will rank as the third largest category in soft drinks in 2016 and will outpace carbonates growth by a narrow margin. Performance of RTD tea will be grounded in Asia’s history with tea and herbal medicine, rekindled by recent health and wellness trends. The industry will further benefit from exports, as RTD tea will be increasingly adopted in Europe and the US, albeit more as a sugary drink and a direct substitute to carbonates, rather than an unsweetened alternative as in Asia.

Turnover of the alcoholic beverages industry will see double-digit growth in 2016, as the region’s vast population will continue to develop a taste for alcohol, in turn encouraging major alcohol producers to build up their capacity. Spirits will account for one third of total beverages’ industry turnover with premium brown spirits, such as whiskies, ranking as the top value drivers in 2016. While beer will equal spirits in terms of sales value, the domestic beer industry will be just half the size due to the strong popularity of imported beer in Asia Pacific.

Booming annual growth of 25 percent will be observed in high-strength premixes, although the category will remain niche along with ciders in terms of sales. Per capita alcohol consumption in Asia Pacific will remain significantly below that observed in Europe with international alcohol manufacturers viewing the differential as an opportunity for growth.

Alcoholic beverages producers will have to supply an increasingly broad range of products in order to remain competitive, as Asian consumers will require a variety of beers, wines, and cocktails for different occasions and to meet different flavours. Nearly half of alcohol consumption will take place at bars, restaurants, hotels, and other venues, where domestic producers will continue to struggle with foreign competitors—the premium segment will be comprised of imported rather than domestic drinks.

At the same time, expansion will be limited by government constraints on alcohol consumption. Thailand will lead the way in controlling alcohol intake, following amendments to the Alcohol Control Act in 2015, which saw prohibition of alcohol sales near higher-education facilities, such as universities and technical schools. However, nearly every other country in Asia Pacific has or will introduce increasingly strict measures ranging from taxation to outright prohibitions of alcohol use.